Liffe cuts fees as battle with Frankfurt escalates

THE LONDON International Financial Futures and Options Exchange (Liffe) has sparked off another round in "the battle of the exchanges" by cutting its prices in a move designed to claw back market share from arch-rival DTB, the electronic exchange based in Frankfurt.

Liffe is to cut its transaction fees on its financial futures and options products, in an attempt to encourage "additional usage" of Liffe's products, according to Daniel Hodson, the exchange's chief executive.

From 1 April, the transaction charges for all financial futures and options contracts - excluding the Euroyen futures contract - will be reduced to 25p per lot per side. Previously, the rate for financial futures was 42p and for financial options 27p.

The move is part of a concerted campaign by the exchange to reassert itself in the competitive European market.

Two weeks ago, Liffe announced the main results of a wide-ranging review of its strategic direction. The key proposal was the decision to develop an electronic trading system by the end of next year which will operate alongside its traditional "open outcry" system. The exchange also said it would cut transaction fees - the details of which were announced yesterday.

Liffe has lost market share to electronic exchanges recently, particularly DTB. Large players appear to be increasingly disaffected with the exchange - both Lloyds TSB and Nikko, the Japanese bank, have scaled down their presence.

Especially galling for Liffe has been the success of DTB in trading the prestigious German bond (Bund) contract. Last month, Liffe's share of the 10-year Bund futures market sank to 39 per cent, down from 70 per cent a year ago.

The exchange's rivals added insult to injury earlier this week when the Deutsche Borse took out full-page adverts in a number of UK national newspapers, offering to install DTB's electronic system at Liffe for free.

Liffe was not amused. "The DTB system does not have the superior functionality we require," remarked Jack Wrigglesworth, Liffe's chairman.

The recent decision of two rival exchanges to merge has simply heaped more pressure on Liffe's shoulders. Earlier this month, the Chicago Board of Trade, the world's largest derivatives exchange, said it intended to link up with Eurex, the electronic European exchange.

In May, Liffe's proposals for change will be given further consideration by member firms at an extraordinary general meeting. Members are expected to rubber-stamp plans to introduce electronic trading and will also discuss Liffe's controversial scheme to relocate at Spitalfields in East London. Other likely topics for discussion include Liffe's ownership structure. Mr Hodson has hinted it could incorporate and float on the stock market.

Separately, Liffe announced yesterday that Datastream/ICV and Reuters would sell and support a Liffe-developed software package which provides access to Liffe Connect, the exchange's new electronic platform for trading individual equity options.